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Victoria looks at rarely used economic incentive

By Brian Cuaron
Oct. 23, 2011 at 5:23 a.m.


Industrial development bonds

1982: Victoria City Council creates Victoria Development Commission.

1982: Victoria Development Commission approved industrial revenue bond financing for an H.E.B. "superstore" at Rio Grande and Laurent.

1983: Victoria Development Corp. approved industrial revenue development bond issues for M&D Enterprises, which used $1.9 million from the bond to finance a Holiday Inn expansion, and Gulf Coast Paper Co., which used $1.2 million to help finance a new warehouse and headquarters office in an industrial park off Houston Highway.

1984: Victoria Development Commission approves industrial revenue bond of $2.65 million for Totahs Motel Inc. The Victoria Health Facilities Development Corporation also approved a $2.5 million industrial revenue bond for the Victoria Nursing Center as well.

Source: Advocate archives

Victoria leaders are preparing the city for an economic incentive that it has not handed out in decades.

The city is looking at one company for a possible industrial development bond, said Gilbert Reyna Jr., finance director.

The company would get the bond by using the city's tax-exempt status in the market, Reyna explained. As a result, interest rates on the bond possibly would drop from the normal range of 8 to 9 percent to somewhere in the 3 to 4 percent range.

The goal of this loan mechanism is to help small- to medium-sized manufacturers, Reyna said. The city would receive an economic benefit, as a result.

To qualify for the program, a company couldn't spend more than $20 million in capital expenditures, hard assets such as buildings and equipment, in Victoria for six years: Three years before the bond is approved and three years after, said Tom Spurgeon, bond attorney with the McCall, Parkhurt & Horton law firm.

The Victoria Development Commission would issue the bond, but would not be on the hook for any debt should the company default, Spurgeon said. His law firm has contracted its services to the city and the commission.

However, should the company default, the city's name would be associated with the failure, Spurgeon said. While it's possible that a default could have a consequence for the city, he didn't think a default would hurt the city's ability to get bonds in the future as long as creditors thought that the city entered into the agreement properly.

Reyna didn't see any danger to the city's ability to borrow money if the company defaulted on its loan. He pointed out that the handful of other companies approved for such an agreement, in the 1980s and early 1990s, paid back the bonds.

Possible benefits available to the city include jobs, an increased property tax base and a fee charged to the company for using the city's tax-exempt status to get a lower interest rate. Councilman Joe Truman said more than 100 jobs could come to the city in the proposed project.

To prepare for this, city leaders have spoken in closed, executive session and convened a rarely used commission of council members.

Gearing up to issue bond

Councilman David Hagan did something new in his five-year political career on Aug. 29: Meet with the Victoria Development Commission. He was appointed to the commission during his first three-year term that began in 2006.

The commission's other two members include Truman and Councilwoman Denise Rangel. City staff, Spurgeon and other officials also were present, the meeting's draft minutes show.

The commission previously had met once in 2007 to keep the incorporated commission active, Reyna said. The last time it met before that was in 1992, said City Secretary Scarlet Swoboda.

After going into executive session, the commission unanimously authorized a 1/2 percent issuer fee.

Consequently, those taking out an industrial development bond of $10 million, the maximum allowed, would pay a $50,000 fee to the city, Reyna explained.

The commission approved an industrial-revenue-bond application form, the minutes showed. RBC Capital Markets was made the commission's financial adviser, and Spurgeon's law firm was hired as the bond counsel. Both law firms contract the same services to the city council, Spurgeon said.

The city council was informed in an executive session about the possibility of a bond agreement, Hagan said. Commission members were asked then if they would meet on the issue.

An application for such a bond hasn't been received, Hagan said. But the commission's action Aug. 29 would allow it to deal with an application immediately.

How the process would work

Once the commission receives an application, it would review it to see if it's a viable project, Reyna said. The city would review the company's credit rating and history.

The city would want to approve only an applicant who has a manufacturing history and not one that would go bankrupt soon, Reyna said.

The commission and council must approve the application, Spurgeon said.

The application would then be sent to the state for approval, Reyna said.

The application must be approved by the Economic Development and Tourism Division of the Governor's Office, Spurgeon said. The Public Finance Division of the state's Attorney General's Office would do a legal review of the application, wrote Tom Kelley, attorney general's press office, in an email.

If all entities approve the application, the city would hold a public hearing, Reyna said.

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